An analysis of Chinese money and prices using a McCallum-type rule

Tuuli Koivu, Aaron Mehrotra and Riikka Nuutilainen

Journal of Chinese Economic and Business Studies, 2009, vol. 7, issue 2, 219-235

Abstract: This paper evaluates the usefulness of a McCallum-type monetary policy rule based on money supply for maintaining price stability in mainland China. We examine whether excess money relative to rule-based values provides information that improves the forecasting of price developments. The results suggest that our monetary variable helps in predicting both consumer and corporate goods price inflation, but the results for consumer prices depend on the forecasting period. Moreover, results using a structural vector autoregression suggest that our measure of excess money supply could be used to identify monetary policy shocks in the Chinese economy.

Keywords: McCallum rule; monetary policy; China (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (11)

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DOI: 10.1080/14765280902847742

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